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People contemplating marriage are increasingly using prenuptial agreements as a way to strengthen their relationships and create financial harmony before tying the knot. These agreements help give each party a better understanding of each other’s assets, debts, and financial goals while removing potential financial incentives to separate down the road that could hurt the relationship. The following guide reviews the key aspects of creating a prenuptial agreement.

Separate and Shared Property

One of the most important jobs of a prenuptial agreement is to specify what property of yours will be considered separately owned and what will be considered shared. Without a prenuptial agreement, this can be ambiguous. The agreement solves this by clearly defining how property will be treated depending on the intention of the parties and who purchased it. After signing the agreement, property will only be considered shared if 1) it is purchased using joint funds or 2) there is clear documentation showing the parties’ intent to share it. All other property will be considered separately owned.

So, for instance, if your spouse buys a car using only her money, then the car will be considered her separately owned property. If you later decide that you want it to be shared property, you can simply sign a written statement to that effect, such as “We intend to share ownership of the 2015 Subaru Outback that Jessica purchased on October 25, 2018.” You can always reclassify property as shared or separate in this manner.

Dispute Resolution

You can choose to require that the parties settle disputes regarding the agreement through mediation and/or arbitration instead of in a court of law. Mediation is a form of non-binding dispute resolution where an impartial mediator helps the parties work through their differences in order to reach a compromise. Should mediation fail to produce a settlement, then the parties can appear before an arbitrator with or without individual attorneys present. An arbitrator is similar to a judge, and is often a lawyer who specializes in deciding cases in the area of the law where the dispute has occurred. By agreeing to submit disputes to arbitration, each party is agreeing to waive their right to appear in court to have a judge issue a ruling on their dispute. Instead, the parties agree that the arbitrator’s ruling will be legally binding. The advantage here is that arbitration is normally much faster and considerably less expensive than using the formal court system.

Estate Planning

Please keep in mind that a prenuptial agreement does not replace a last will and testament. Each party should still create an estate plan for how their assets should be distributed in the event of their death. Also, the parties are still free to name each other as beneficiaries in their wills, trusts, or retirement plans.

State Requirements

Most states require that the soon-to-be spouses take a “reasonable” amount of time to review their prenuptial agreement and seek any desired legal or financial counsel before signing it. It is best to wait a minimum of one week after receiving the final version of the agreement before signing it in order to make sure it is legally enforceable. In states such as California, the one-week waiting period is mandatory.

Executing Your Agreement

Your agreement must be correctly executed (signed and witnessed) in order to be valid. When you are ready to sign, have each party initial the bottom of each page to show they have read it. Wait to sign until you are in the presence of a notary public and two other witnesses (three witnesses are needed in New Hampshire and Vermont). After signing, provide a copy of the fully executed agreement to each party.

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Frequently Asked Questions

What is a prenuptial agreement?

A prenuptial agreement is an agreement or contract created by a couple before they are married. This legal document lists the property owned by each person and spells out how the property will be divided if the marriage ends in divorce. Also called a “prenup,” “antenuptial agreement,” or even “prenuptial contract,” this document can be used to protect specific assets or income from division if there is a divorce.

Do you need to be wealthy to get a prenup?

While the idea of a prenuptial agreement may create the impression of a very wealthy person attempting to protect their assets from a future spouse with few assets, anyone can create a prenuptial agreement. Some possible reasons to get a prenuptial agreement beyond wealth include the following:

  • To clarify financial responsibilities before, during, and potentially after marriage
  • To avoid problems or disagreements if you decide to divorce
  • To pass property to specific children or to children from a previous marriage
  • To protect property from the other spouse’s debts or creditors

What should I include in a prenuptial agreement?

Each state has its own provisions for the definition of personal property and jointly owned or community property. A prenuptial agreement allows you to define and protect specific property in the event of a divorce. Without a prenup, a court could decide how to divide your assets instead. The following items can be included in a prenuptial agreement:

  • Protection from your spouse’s debts
  • Provisions for children from previous marriages or relationships
  • Ownership of specific family heirlooms, businesses, property, or inheritances
  • Estate plan protection (you will also need a will designating your wishes)
  • An outline for dividing property if there is a divorce
  • Instructions for determining alimony after divorce (some states allow this, some do not)
  • Your marriage responsibilities

While state laws vary, most states do not allow the following items or issues to be included in a prenuptial agreement:

  • Non-financial relationship issues, including agreements about religion and child rearing
  • Illegal actions or provisions that would be against the law
  • Child support or custody agreements
  • Eliminating one partner’s right to alimony
  • Financial incentives that encourage divorce

Is a prenuptial agreement binding?

It depends on where you live and whether the agreement contains a sunset clause, which allows the prenuptial agreement to only exist for a set period of time. Once that time has passed, the protected property becomes joint property, shared by both parties in most states.

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